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2025 Q1 Market Update

2025 Q1 Market Outlook

Markets performed exceptionally well in 2024, despite tough economic conditions, global tensions, and significant U.S. monetary policy revisions. The S&P 500 saw new highs and finished up over 20%, while the Dow Jones Industrial Average (DJIA) gained over 10%. The technology-heavy NASDAQ index delivered the strongest performance, finishing up more than 25%. However, the broader market's strength masked a significant disparity in returns, with the top 10 stocks driving an outsized portion of the gains.

Stocks: Concentrated Leadership

  • Top 10 Dominance: A striking feature of 2024 was the heavy reliance on a small group of mega-cap stocks for the S&P 500’s performance. The top 10 stocks, including leaders in technology and innovation, collectively returned nearly 75% of the index’s gains. Meanwhile, the remaining 490 stocks contributed far less, highlighting a significant concentration of market performance in a few key players. 1
  • Implications: This disparity raises questions about the broader health of the market. While investors heavily exposed to the top-performing companies enjoyed substantial gains, a reliance on such concentrated leadership makes the market more vulnerable to corrections if these key stocks falter.
  • Investment Strategy: For 2025, diversification is essential. While the market’s top performers are likely to remain influential, undervalued sectors and companies outside this narrow leadership group could present attractive opportunities, especially if a broader market rally unfolds.

Bonds: Volatility Amid Rate Adjustments

  • The bond market experienced considerable volatility in 2024. Despite the Federal Reserve cutting interest rates by 100 basis points, U.S. Treasury yields rose by approximately the same amount. This unexpected rise in rates suggests deeper economic concerns and highlights the disconnect between the equity and fixed-income markets.
  • What to Watch: The rise in Treasury yields could reflect inflationary pressures, fiscal policy uncertainties, or shifts in global investor sentiment. Monitoring how the bond market adjusts under the Trump administration’s policies will be critical in navigating the challenges of early 2025.

Technical Analysis Perspective

Equity markets remained resilient for much of 2024, but some leveling and weakness appeared in December. This could be attributed to investor anticipation and skepticism surrounding the incoming administration’s policies. Markets are now at an inflection point, with sentiment remaining high but caution warranted as potential policy shifts could disrupt the economic landscape.

Graphs Powered Courtesy of StockCharts.com

Outlook for 2025

As we move into 2025, it will be vital to monitor several factors:

  1. Policy Impact: Major changes under the Trump administration could lead to short-term volatility or longer-term shifts in market dynamics.
  2. Sector Rotation: A broader base of market participation beyond the top-performing stocks would signal healthier overall market dynamics.
  3. Inflation and Rates: Continued adjustments in monetary and fiscal policy and their impact on Treasury yields will remain a focal point.

Despite the uncertainty, we remain cautiously optimistic, entering the new year with resilient portfolios designed to hedge downside risks without sacrificing upside potential. As always, we will closely monitor the markets and adapt as new developments unfold.

We appreciate your feedback. Feel free to leave your thoughts or questions in the comments section, or email us at: cornerstone.service@oneascent.com 






Endnotes

  1. Weekly Investment Update December 30, 2024. OneAscent Investments_Negative. (n.d.). https://investments.oneascent.com/blog/weekly-investment-update-december-30-2024?utm_medium=email&_hsenc=p2ANqtz-929f5u-J0ipc9tMslrx7I25OIdvvI-TGKwDrLCjKP0y8_ScXWeQWEwvGZR3n2JW9bcF1LM8-aAJ2p5tX545-Q3f04QA9_mpMjtEiEHe6Y7gdezOg4&_hsmi=340528675&utm_content=340528675&utm_source=hs_email 

 

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